The US dollar and Japanese yen are trading lower. The tone is largely consolidative, and the foreign exchange market is not main focus today.  Instead, the OPEC-non-OPEC agreement before the weekend is arguably the key driver today. Oil prices are up 4.5%-4.8%, lifting bond yields and supporting oil producers’ currencies, like the Norwegian krone, Canadian dollar, the Russian ruble and Mexican peso.   

Most emerging market currencies are firmer, but the two bombings in Turkey over the weekend are seeing the lira extend the slide at the end of last week. The dollar looks poised to challenge the TRY3.5935 record high set on December 2.  

Bond yields broadly higher. Even Japanese bonds are not immune to the pressure. Today’s three basis point increase lifts the 10-year yield (generic) to almost nine basis points, the highest in 10 months. Recall that at the end of November the yield stood at two and a half basis points. Under its new framework, the BOJ wants to keep the 10-year yield near zero. European bonds are mostly firmer. Of the major countries, French bonds yields are up the most, with a five bp gain. Most of the core yield are up three-four basis points, while Spanish and Portuguese yields are off a little more than one basis point. 

Italian bond yields are little changed and slightly lower. Despite the political and economic concerns, Italy continues to be able to borrow up to two-year money at negative rates. Italy’s Foreign Minister Gentiloni has been asked to form a government in the wake of Renzi’s resignation. Padoan is expected to remain Finance Minister. It will be the fourth un-elected government, and in its caretaking role, there are three main issues: preparing for elections, which involves a) court ruling on new reforms, b) adjusting laws as needed, and c) devise rules for upper chamber election, addressing banking challenges, and reconstruction following the recent earthquakes.